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5-Mins Guide To Understanding Nikko Asia ex Japan REIT ETF

Here’s a quick guide to the latest REITS ETF listed on SGX.

Another REITs exchange-traded fund have been listed on the SGX mainboard on 29 March 2017. Its name is…

NikkoAM-StraitsTrading Asia ex Japan REIT ETF (SGX:CFA).

Here’s a 5 minutes guide to bring you through some of the important points to know before you start investing into it.

1. Objective of Fund

The investment objective of the fund is to replicate, as closely as possible, the performance of the FTSE EPRA/NAREIT Asia ex-Japan NET Total Return REIT Index. It will adopt the full replication strategy which basically tries to replicate the same weightage as reflected in the actual Index.

Besides that, it targets for an estimated 5% dividend distribution, paid quarterly at the manager’s discretion. The manager of the fund is Nikko Asset Management Asia Limited – a well-known fund house you may have heard of. They also run many other funds which include the ABF Singapore Bond Index Fund and Nikko AM Singapore STI ETF.

2. Composition of the Fund

The Fund is mainly concentrated in Singapore (60.5%) and Hong Kong (23.0%). Other countries include Malaysia, China and Indonesia.

Sector wise, it is mainly concentrated in Industrial & Office REITs (44.7%) and Retail REITs (39.7%). The largest constituent is Ascendas REIT with a 10.28% weightage. Other powerhouse with huge weightage include CapitaLand Mall Trust, Link REIT and Suntec REIT.

The entire list of constituents is as shown below, taken from their product info sheet.

3. Fees & Charges

The fees and charges can be found in their Product Highlight Sheet. Here’s a quick summary below.

1) Management Fee – 0.50% per annum of the Deposited (Max 0.70% per annum)

2) Trustee Fee – Up to 0.04% per annum of the Deposited Property (Max 0.05% per annum, subject to a minimum fee of S$15,000 per annum)

3) Custodian Fee – Subject to agreement (May amount to or exceed 0.10% per annum)

4) Administration Fee – 0.04% per annum of the Deposited Property (Max 0.05% per annum, subject to a minimum fee of S$15,000 per annum)

In total, you are looking at an annual fee of about 0.7 to 0.8%

4. Risks to note

One risky component which I find prominent is its geographical diversification. As the fund is mainly concentrated in the Asia exJapan region, a regional shock can potentially bring down your whole portfolio.

To add on, investments of the Fund may not always be denominated in SGD so fluctuations of the exchange rate will also affect your returns.

Furthermore, like with all other ETFs, there can be no assurance that the Fund will achieve its investment objective or that it will be able to fully track the performance of the Index.

5. Investment Horizon

From its prospectus, it states that “Investments in the Fund are designed to produce returns over the long term and are not suitable for short term speculation”. Therefore, you should only consider jumping into it if you seek medium to long-term capital appreciation.

However, my personal take is that 5% dividend yield to lock in your money for the long term is generally unattractive. There are definitely bigger fishes out there that can bring you better returns.

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